The Art of Pricing Strategies: 8 Key Approaches Every Business Owner Should Master

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In the world of business, setting the right price is an art that requires practice, trial and error, and a deep understanding of product development strategy. Over my 10+ years in the marketing industry, I’ve seen firsthand how effective pricing can be a game-changer. While every market is unique, there are eight common pricing strategies that businesses can learn from and apply to their products.

This article is inspired by insights shared by Nguyễn Quang Hiệp, Gold Award Winner at Vietnam Young Lions 2016, and Brand Manager at Wilmar Calofic, with 6 years of experience in marketing at Unilever and Masan Consumer.

1. Skim Pricing (Cream Pricing)

Skim pricing involves setting a high price for a new product to maximize profits from early adopters before gradually lowering the price over time. This strategy is typically used for products that appeal to a high-end, trend-sensitive audience, but have a short lifecycle due to rapid technological advancements or changing consumer preferences.

Example: In the tech industry, companies like Apple have mastered skim pricing. They launch new products at a premium, targeting early adopters willing to pay top dollar. Over time, as demand from early adopters wanes, prices are lowered to attract more price-sensitive consumers.

2. Prestige Pricing

Prestige pricing is reserved for luxury products and brands. Unlike skim pricing, prestige pricing does not lower over time. The goal here is to maintain a high price to reflect the exclusivity and premium nature of the product, appealing to a niche market that values status and lifestyle.

Example: Luxury fashion brands such as Chanel or Louis Vuitton use prestige pricing. Their products are priced high to maintain an image of exclusivity, and discounts are rarely offered, reinforcing the brand’s high-end appeal.

3. Predatory Pricing

Predatory pricing involves setting prices extremely low, often below cost, to drive competitors out of the market. This strategy creates a price war, making it difficult for new entrants or smaller competitors to survive. It is often employed in markets where price sensitivity is high, such as fast-moving consumer goods.

Example: In retail, large supermarket chains may use predatory pricing to undercut local competitors by offering essential goods at prices so low that smaller stores can’t compete, eventually forcing them to close.

4. Going-Rate Pricing

Going-rate pricing is based on following the competition’s pricing strategy. Companies using this method may set their prices slightly lower or higher depending on their brand strength, product quality, or sales strategy.

Example: In the fertilizer or steel industries, where product differentiation is minimal, companies often match their prices to the market leader. Adjustments are made based on the perceived value of their brand compared to competitors.

5. Discriminatory Pricing

Discriminatory pricing involves selling the same product at different prices based on customer segments, locations, or purchasing conditions. The goal is to maximize revenue by charging different prices to different customer groups based on their willingness to pay.

Example: Ride-sharing companies like Uber and Grab use discriminatory pricing with surge pricing models. During peak hours, prices increase, while during off-peak times, fares are reduced. Similarly, movie theaters offer discounted tickets for seniors, students, or locals.

6. Loss Leader Pricing

Loss leader pricing involves selling a product at a loss to attract customers with the expectation that they will buy additional items at full price. This strategy is often used for bundled products or to build customer loyalty.

Example: Fast food chains like KFC or McDonald’s often sell items like ice cream or fries at a very low price to entice customers. Once in the store, customers are more likely to purchase higher-margin items like burgers and drinks.

7. Penetration Pricing

Penetration pricing is used when entering a new market. Companies set a lower price than competitors to attract customers quickly and establish market share. While this strategy increases sales volume, it can reduce profit margins initially.

Example: When Netflix first entered international markets, it offered lower subscription rates compared to local TV providers. This low-price strategy helped them rapidly gain subscribers, and once established, they gradually raised prices.

8. Sandwich Pricing

Sandwich pricing is a competitive strategy where a company introduces two products at different price points, one above and one below a competitor’s offering. This “sandwiches” the competitor between two products, creating pressure from both ends.

Example: In the smartphone market, Samsung positions its Galaxy models at both premium and budget price points, effectively sandwiching competitors like Xiaomi, which may only target the mid-range market. This strategy allows Samsung to dominate both higher and lower market segments.

In conclusion, pricing strategies are critical to the success of any business. By understanding and experimenting with these eight approaches, business owners can effectively position their products in the market, attract the right customer segments, and maximize profits. Whether you’re launching a new product or re-evaluating an existing one, choosing the right pricing strategy can significantly impact your bottom line.